FDIC R.I.P - Eric Janszen

[cjppjc]

Re: FDIC R.I.P - Eric Janszen

This tells me it is designed to fail, and leave the taxpayer with the financial party bill.

Well, you're a little darker than me. But failure does seem to be baked in.

[opps]

Re: FDIC R.I.P - Eric Janszen

Pres. Obama talked of the surprisingly strong dollar. Next target.... Selling dollars in the open market?

[Sharky]

Re: FDIC R.I.P - Eric Janszen

This tells me it is designed to fail, and leave the taxpayer with the financial party bill.

Of course it's designed to fail. That's the whole idea! It's simply a back-door way of bailing out the banks and sticking the taxpayers with the bill. I don't think anyone is even bothering to deny that.

I have to admit, though, that the ingenuity that the Fed has with spending money that wasn't appropriated by Congress has been very impressive.

[FRED]

Re: FDIC R.I.P - Eric Janszen

Hey EJ,
Very nice as always, but I'd sure appreciate some guidance as to what direction to take -- both for protection and maybe positioning to take advantage of what you say is coming.
Given some of the postings over the last few months I'd say you must have stock in whomever makes Xanax.....l

Coming tomorrow. That's what the recently debated subscription area is for.

[CanuckinTX]

Re: FDIC R.I.P - Eric Janszen

when the average joe started flipping houses in 2006 the the feelings were positive too. Problem is when the average joe gets in he gets crushed.

I think the lesson is that when everyone gets overly optimistic or pessimistic its a sign that a turn is about to happen.

But for now I'm sitting out for a little longer ... just in case.

I guess my point is that you've noticed that EJ has been pretty spot on with his calls so far, so why would you be itching to buy again when he's shown absolutely no hint that we're anywhere close to that point?

Reading this site might give one the impression that pessimism is high in the economy, but I think we readers are always ahead of the curve. The real level of pessimism on the street is nowhere near what it will be if EJ is right.

[jimmygu3]

Re: FDIC R.I.P - Eric Janszen

Now that's about as direct a call as can be made! ITulip saved my 401K last year, I'll stick with ITulip this year as well.

Now forgive me for asking: Every stock permabear and permabull is an expert at one time or another. The question is when do we get back in????

I don't accuse ITullip as either, but there has to be a time to buy sometime....... right???

right???

EJ's 30%-40% drop call puts the Dow bottoming out between 4600 and 5360, basically the 5000 target he has had for a long time. When the Dow gets below 5000, stocks will be attractive. Even below 6000 there's a lot more upside than downside. This will be an especially good trade if we can all sell our gold for $2500 to buy cheap stocks.

Jimmy

[jimmygu3]

Re: FDIC R.I.P - Eric Janszen

I guess my point is that you've noticed that EJ has been pretty spot on with his calls so far, so why would you be itching to buy again when he's shown absolutely no hint that we're anywhere close to that point?

Reading this site might give one the impression that pessimism is high in the economy, but I think we readers are always ahead of the curve. The real level of pessimism on the street is nowhere near what it will be if EJ is right.

Right. The attitude I find on the street is, "I've already lost 40%, what's the point in selling now?". The bottom will come when that changes to "I'm gonna sell everything before it goes to zero!"

[FRED]

Re: FDIC R.I.P - Eric Janszen

EJ's 30%-40% drop call puts the Dow bottoming out between 4600 and 5360, basically the 5000 target he has had for a long time. When the Dow gets below 5000, stocks will be attractive. Even below 6000 there's a lot more upside than downside. This will be an especially good trade if we can all sell our gold for $2500 to buy cheap stocks.

Jimmy

We have our first major allocation change in many years coming.

[mmr]

Re: FDIC R.I.P - Eric Janszen

Here's one idea that an acquaintance suggested today that could allow banks to use this lovely program to offload a majority of their future credit losses onto the public:

- Several banks would form a consortium to qualify as an investor for the public / private partnership program

- Bank consortium agrees to pay a premium for loans on the banks' balance sheets (e.g., bid 90% of par for Florida construction loans when the actual cash flows will be, say, 50% of par)

- FDIC offers 4:1 leverage and Treasury puts up 50% equity stake (banks' maximum loss share is 10% of the purchase price, or 1/2 of the 20% equity contribution)

- Capital structure for investment therefore allocated as follows: 72% of par in FDIC debt, 9% Treasury equity stake, 9% bank consortium equity stake

- Maximum loss for the banks reduced from 50% of par to 19% (10% loss on sale + 10% of the 90% bid value)

- Loss for taxpayers of 31% of par (9% Treasury equity position wiped out and 22% loss on FDIC-guaranteed debt)

The FDIC would theoretically offer lower amounts of leverage for riskier pools of assets, but as long as the Treasury is willing to offer a dollar for dollar coinvestment, the banks can reduce their expected losses through this structure by at least the amount of that coinvestment (relative to holding the loans on balance sheet). This would also have the side benefit of establishing an inflated value for their remaining loans and related types of securities.

I'm sure there are hundreds (or thousands?) of far brighter minds than my own working on other ways to profit from this program at our collective expense.

[Supercilious]

Re: FDIC R.I.P - Eric Janszen

Pres. Obama talked of the surprisingly strong dollar. Next target.... Selling dollars in the open market?

That starts tomorrow...

By the way, just in case you were wondering how successful was the Bear Stearns bailout:

http://www.marketwatch.com/news/story/Treasury-take-over-Bear-Stearns/story.aspx?guid={855A56BF-E8A1-49B5-BD95-02F6A9A813B2}&dist=hplatest

WASHINGTON (MarketWatch) -- The Treasury and the Federal Reserve released a joint statement Monday that spells out the different responsibilities of the two agencies in dealing with the financial crisis. In the most noteworthy part of the agreement, Treasury said it would take over the Fed's holding of assets of Bear Stearns and American International Group. Treasury did not say how it would pay for these programs and said it would only make the move "in the longer term and as its authorities permit." The Fed's investments in the three funds, known as Maiden Lane, totaled $72.21 billion in the latest week, according to Fed statistics.

Yey for us! We are all now owners of about $1000 worth share of Bear Stearns and AIG ... Wow it feels good to be a shareholder of two great companies.

[TheServant]

Re: FDIC R.I.P - Eric Janszen

I want to thank Mr. Janszen and others on this board for providing such a wide range of helpful insights into this fiasco. Eric gave me the final nudge to shift the lion's share of my retirement from stocks to treasuries when I first came upon ITulip in the fall of 2006.

My wife and I moved from a small mid America town to the Detroit Metro area in 2003. I remember her asking me in the summer of '06 where these people got all their money. My tongue and cheek response was that they were all in debt. At the time, I did not quite appreciate the true magnitude of the problem. It was not too long after that day that it became painfully obvious what was coming, if you chose to look. We kind of led the charge into the abyss here in car country.

Anyway, enough rambling. I just registered to the forum yesterday and am looking forward to sharing in some thought provoking discussions as this economic "transition" continues to unfold over the coming years.

Thanks again.

[Basil]

Re: FDIC R.I.P - Eric Janszen

We have our first major allocation change in many years coming.

Is this the trade out of treasuries and into oil to which you referred in another thread?

[jimmygu3]

Re: FDIC R.I.P - Eric Janszen

Here's one idea that an acquaintance suggested today that could allow banks to use this lovely program to offload a majority of their future credit losses onto the public:

- Several banks would form a consortium to qualify as an investor for the public / private partnership program

- Bank consortium agrees to pay a premium for loans on the banks' balance sheets (e.g., bid 90% of par for Florida construction loans when the actual cash flows will be, say, 50% of par)

- FDIC offers 4:1 leverage and Treasury puts up 50% equity stake (banks' maximum loss share is 10% of the purchase price, or 1/2 of the 20% equity contribution)

- Capital structure for investment therefore allocated as follows: 72% of par in FDIC debt, 9% Treasury equity stake, 9% bank consortium equity stake

- Maximum loss for the banks reduced from 50% of par to 19% (10% loss on sale + 10% of the 90% bid value)

- Loss for taxpayers of 31% of par (9% Treasury equity position wiped out and 22% loss on FDIC-guaranteed debt)

The FDIC would theoretically offer lower amounts of leverage for riskier pools of assets, but as long as the Treasury is willing to offer a dollar for dollar coinvestment, the banks can reduce their expected losses through this structure by at least the amount of that coinvestment (relative to holding the loans on balance sheet). This would also have the side benefit of establishing an inflated value for their remaining loans and related types of securities.

I'm sure there are hundreds (or thousands?) of far brighter minds than my own working on other ways to profit from this program at our collective expense.

Better yet, sell stock in said consortium to J6P and unload that 19% loss on him. Light fuse and get away.

[Rajiv]

Re: FDIC R.I.P - Eric Janszen

It appears that James Galbraith is agreeing with EJ on this

Part I: Geithner's Plan "Extremely Dangerous," Economist Galbraith Says

Why?

In short, because the plan is yet another massive, ineffective gift to banks and Wall Street. Taxpayers, of course, will take the hit Why does Tim Geithner keep repackaging the same trash-asset-removal plan that he has been trying to get approved since last fall? In our opinion, because Tim Geithner formed his view of this crisis last fall, while sitting across the table from his constituents at the New York Fed: The CEOs of the big Wall Street firms. He views the crisis the same way Wall Street does--as a temporary liquidity problem--and his plans to fix it are designed with the best interests of Wall Street in mind.

If Geithner's plan to fix the banks would also fix the economy, this would be tolerable. But no smart economist we know of thinks that it will.
We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:

The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.
.
.
.
.
.
.
.

[nero3]

Re: FDIC R.I.P - Eric Janszen

On Monday's big rise, all of the financial commentators remarked that 1938 was the last time that the markets saw such a high one day increase! I'm amazed at how no one seemed to notice that this market turn was 9 years after the initial drop in 1929 and that there was a lot of volatility and pain experienced in between!!

If you look at the period between 1929 and 1932, there were numerous periods where the market rose and fell by 40%+. I have little doubt that we will see S&P 500 at 600 or lower. That doesn't mean though that it couldn't get up to the 900-1000 range before then! This leads me to the two phrases that all investors should remember...

1) The path is just as important as the destination, and
2) In investing, being early is the same as being wrong.

It's totally improbable that it will go any lower than the earlier low, with the dollar at these levels. I think it's more year 2000 that was like 1929, then deflate the dow by the rise in healthcare costs, or energy, and I think you get in the ballpark of how expensive the dow is now. Inflation have been almost 300 % since 2000.